US & World Daily Markets Financial Briefing 16-08-2010

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Stocks Rebound After Moving Lower At The Start Of Trading

Stocks have shown a notable turnaround over the course of morning trading on Monday after coming under pressure at the open. The major averages have climbed well off their lows for the session and into positive territory.

The tech-heavy Nasdaq is outperforming its counterparts by a wide margin and is currently up 11.39 points or 0.5 percent at 2,184.87. The Dow is up 3.10 points or less than 0.1 percent at 10,306.25 and the S&P 500 is up 0.60 points or 0.1 percent at 1,079.85.

The initial weakness in the markets came as traders reacted to a report showing that the Japanese economy expanded by 0.4 percent in the second quarter, much slower than economist estimates for 2.3 percent growth. The data added to recent concerns about the global economic outlook.

In U.S. economic news, a report from the Federal Reserve Bank of New York showed that conditions for New York manufacturers improved modestly in August, although the index of regional manufacturing activity rose by less than economists had been expecting.

The New York Fed said its general business conditions index edged up to 7.1 in August from 5.1 in July, with a positive reading indicating growth in the manufacturing sector. Economists had been expecting the index to increase to a reading of 7.5.

Meanwhile, traders have largely shrugged off a report from the National Association of Home Builders showing that homebuilder confidence unexpectedly decreased for the third consecutive month in August. The index of homebuilder confidence fell to its lowest level since March of 2009.

Shares of Lowe's (LOW) are seeing early strength even the home improvement retailer reported second quarter earnings and sales that fell just short of analyst estimates. The company also forecast slightly weaker than expected full year sales growth.

3PAR (PAR) has shown a substantial upward move after the data storage company agreed to be acquired by Dell (DELL) in a transaction valued at approximately $1.15 billion, net of 3PAR’s cash. Shares of 3PAR have surged up by 85.6 percent, reaching an all-time intraday high.

Sector News

While most of the major sectors are showing only modest moves, electronic storage stocks have shown a notable move to the upside. The NYSE Arca Disk Drive Index is currently up by 2.3 percent, bouncing off of the nine-month closing low set last Friday.

The strength in the storage sector comes as the news of Dell's acquisition of 3PAR has generated optimism about the possibility of additional acquisitions within the sector.

Considerable strength is also visible among airline stocks, resulting in a 3.5 percent gain by the NYSE Arca Airline Index. Brazilian airline Tam SA (TAM) is leading the sector higher after announcing a merger with Chile's Lan Airlines.

Metal stocks are also seeing notable strength amid an increase in prices in commodities trading, while health insurance stocks are moving mostly lower. The Morgan Stanley Healthcare Payor Index is currently down by 0.8 percent, pulling back further off the one-month closing high set last Monday.

Stocks Driven By Analyst Comments

Shares of Terremark Worldwide (TMRK) have shown a notable move to the upside in morning trading, with the information technology services provider currently up by 5.3 percent. With the gain, Terremark is bouncing off the more than one-month closing low set in the previous session.

The gain by Terremark comes after the Benchmark Company upgraded its rating on the company's stock to Buy from Hold. Benchmark also raised its price target on Terremark to $9 from $8.50.

Volcom (VLCM) has also shown a strong upward move after Robert W. Baird upgraded its rating on the apparel company to Outperform from Neutral with a $23 price target. Shares of Volcom are currently up by 4.6 percent after ending last Friday's trading at a six-month closing low.

On the other hand, shares of Atmel (ATML) are currently down by 0.4 percent after FBR Capital downgraded its rating on the chip maker to Market Perform from Outperform. FBR also lowered its price target for Atmel to $6.75 from $7.25.

Other Markets

In overseas trading, stock markets across the Asia Pacific region turned in a mixed performance on Monday. Japan's benchmark Nikkei 225 Index fell by 0.6 percent on the weak Japanese GDP data, while Hong Kong's Hang Seng Index edged up by 0.2 percent.

Meanwhile, the major European markets are all moving to the downside. The French CAC 40 Index is falling by 0.6 percent, while the German DAX Index and the U.K.'s FTSE 100 Index are down by 0.1 percent and 0.2 percent, respectively.

In the bond markets, treasuries are seeing considerable strength amid the continued concerns about the economic outlook. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is currently down 9.3 basis points at 2.595 percent.

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TSX Poised For A Lower Open Amid Growth Concerns

Toronto stocks are poised for a lower open Monday following discouraging second quarter economic data from Japan, which rekindled fears that the global recovery is stalling. Also from across the border, the Federal Reserve Bank of New York said its general business conditions index edged up, but missed economists' expectations.

On Friday, the S&P/TSX Composite Index inched up 4.65 points or 0.04% to 11,528.25, after surrendering nearly 3% in the previous three sessions.

The price of crude oil edged up Monday morning after falling to its lowest level in a month last week. Crude for September was up $0.39 to $75.78 a barrel.

The price of gold gained on safe haven buying after Japan said its economy grew at a slower pace in second quarter. Gold for December was up $12.00 to $1,228.60 an ounce, near its 7-week high

In corporate news from Canada, fertilizer and agricultural products company Agrium Inc. announced Sunday an offer to acquire Australian rival AWB Ltd. for A$1.50 per share or about $1.1 billion in an all cash deal. Earlier, Grain Corp., a local player, offered A$1.09 per share for AWB.

Human service company ResCare Inc. said it has received a proposal from the Canadian investment firm Onex Corp.  to acquire all of its outstanding shares for $12.60 per share.

Storage facilities operator Public Storage Canadian Properties said that its subsidiary sold certain property to the Ministry of Transportation and Infrastructure for $12.28 million.

Ambulatory surgery center operator Northstar Healthcare slipped into the red, reporting second quarter net loss of C$0.15 per share compared with a profit of C$0.12 per share in the same quarter last year. Further, the company has agreed to a C$5 million non-brokered private placement of common shares to Canada Healthcare Acquisition Inc., a corporation indirectly controlled by Donald Kramer, a former CEO of Northstar.

Fuels and convenience stores operator Parkland Income Fund reported lower second quarter net earnings of C$0.25 per share, compared to C$0.28 per share a year earlier.

Investment company BAM Investments reported lower second quarter net income of C$0.04 per share, compared with C$0.05 per share in the prior year quarter.

Investment management company Matrix Asset Management announced second quarter net income of C$78 thousand or breakeven per share, compared to C$142 thousand or breakeven per share in the year ago quarter.

Oil and gas firm Tethys Petroleum reported a narrower second quarter net loss of $0.02 per share compared to $0.06 per share in the year-ago quarter, mainly due to a fair value gain on derivative financial instrument.

Light steel structural building products maker Genesis Worldwide reported a wider second quarter net loss of C$1.91 million or C$0.03 per share, compared to a net loss of C$1.62 million or C$0.05 per share in the prior year quarter.

Silver explorer First Majestic Silver reported improved second-quarter net income of C$0.10 per share, up from C$0.01 per share in the year-ago period.

Copper producer Anvil Mining swung to profit in second quarter, reporting net income of $0.03 per share, versus a loss $0.13 per share in the previous year.

Precious metals explorer Orvana Minerals turned to loss in the third quarter, reporting net loss of C$0.01 per share, compared to net income of C$0.03 per share in the year-ago quarter.

Gold producer Brigus Gold reported a wider second quarter loss $0.23 per share, compared to $0.12 per share a year ago.

In economic news from the U.S., the Federal Reserve Bank of New York said its general business conditions index edged up to 7.1 in August from 5.1 in July, with a positive reading indicating growth in the manufacturing sector. Economists had been expecting the index to increase to a reading of 7.5.

Earlier today, Japan said its second quarter GDP grew at an annualized 0.4%, belying consensus estimates for a 2.3% growth.

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Asian Markets End Mixed On Economic Concerns

Mixed trading was witnessed among the major markets in Asia on Monday. The markets in Australia, Japan, India, Indonesia, Singapore and South Korea ended in negative territory while the markets in China, Hongkong, and Taiwan ended in positive territory. The Cabinet Office in Japan revealed that the Japanese economy grew 0.4% annually in the second quarter, compared to 4.4% annualized growth in the first quarter. Analysts expected the economy to grow 2.3% in the second quarter. Following weak GDP numbers, Japan has been dethroned as the second largest economy in the world and China took that coveted position. Concerns about double-dip recession in the world's largest economy following mixed economic reports in the past few months kept traders at the sidelines awaiting more decisive cues.

In Japan, the benchmark Nikkei 225 Index fell 56.79 points, or 0.6%, to 9197, while the broader Topix index of all First Section issues was down 2.61 points, or 0.3%, to 829.

On the economic front, a preliminary report released by the Cabinet Office revealed that Japan's gross domestic product added just 0.1% in the second quarter of 2010 compared to the previous quarter, well below the analysts' mean expectations for a 0.6% growth in the quarter, following a revised 1.1% growth in the first quarter. On an annualized basis, GDP for the quarter was up 0.4%, missing forecasts for a 2.3% increase following a revised 4.4% gain in the first quarter. The report further noted that nominal GDP declined 0.9% on quarter and 3.7% on annualized basis.

Exporters and machinery stock led the decline on concerns about slowdown in the domestic economy as well as strengthening of the yen against the dollar and the euro. Canon Inc. slipped 0.70%, Sharp Corp. fell 1.61%, Panasonic Corp. shed 0.74%, Sony Corp. lost 2.99%, Advantest Corp. was down 2.10%, Tokyo Electron was down 1.16%, and Kyocera Corp. declined 0.65%.

Automotive stocks also ended weaker. Honda Motor slipped 0.86%, Suzuki Motor Corp. slipped 0.53%, Isuzu Motors fell 2.22%, Hino Motors lost 1.57%, Toyota Motor shed 0.17%, Mazda Motor declined 1.00% and Mitsubishi Motors was down 0.89%.

Trading companies also slipped into negative territory on concerns about domestic economy. Sumitomo Corp. fell 2.28%, Mitsubishi Corp. lost 1.08%, Itochu Corp. shed 1.75%, Toyota Tsusho Corp. slipped 0.85%, Marubeni Corp. declined 2.37% and Mitsui & Co., shed 0.68%.

Shipping related stocks also ended weaker. Kawasaki Kisen Kaisha declined 1.45%, Mitsui OSK Lines slipped 0.70% and Nippon Yusen shed 0.29%.

Real estate stocks, however, bucked the overall negative trend and ended in positive territory. Mitsubishi Estate surged up 2.46%, Mitsui Fudosan gained 1.89%, Sumitomo Realty and Development added 0.38%, Tokyu Land Corp. advanced 0.93% and Heiwa Real Estate was up 0.98%.

In Australia, the benchmark S&P/ASX200 Index slipped 21.10 points, or 0.47%, and closed at 4,438 points, while the All-Ordinaries Index ended at 4,465, representing a loss of 15.50 points, or 0.35%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the sale of new motor vehicles in the country declined a seasonally adjusted 2.6% in July coming in at 85,019. In the previous month, the sales declined a revised 1.4%, the report added. On an annual basis, sales rose 11.6% in July following 7.8% gain in the previous month. Sale of passenger vehicles declined 4.3%, and sale of other vehicles were down 4.2%. However, sale of sports utility vehicles increased 3.2%, the report added.

Banks ended in negative territory on concerns about global economic recovery. ANZ Bank edged down 0.09%, Commonwealth Bank of Australia declined 3.36%, National Australia Bank fell 0.92% and Westpac Banking slipped 0.22%. Investment banking company Macquarie Group was down 1.33%.

Mixed trading was witnessed among mining and metal stocks. BHP Billiton fell 0.99%, Rio Tinto lost 0.85%, Gindalbie Metals slipped 0.65%, Macarthur Coal declined 1.10%, Mincor Resources shed 2.13%, Murchison Metals was down 2.09%, and Oz Minerals ended lower by 0.82%. However, Fortescue Metals gained 1.13%, and Minara Resources surged up 3.07%.

Oil related stocks also ended mixed. Woodside Petroleum surged up 3.83%, Santos Ltd edged up 0.07%, ROC Oil advanced 1.28% and Oil Search Ltd added 0.68%. However, Origin Energy ended in negative territory with a loss of 1.85%.

Gold related stocks ended in positive territory following rise in gold prices in the international market. Lihir Gold gained 1.16% and Newcrest Mining rose 1.48%.

Weaker than expected GDP numbers from Japan for the second quarter, volatile futures trading in the US market amid concerns about double-dip recession and mixed trading in European markets weighed on Indian markets, leading to sharp sell-off in late trading session, partly due to profit taking at higher levels. The benchmark 30-share BSE Index shed 116.25 points or 0.64% to end at 18,050.78, while the to-share S&P Nifty index ended at 5415.35, down 36.75 points, or 0.67%. The BSE small cap index declined 0.25% while the mid-cap index ended in positive territory with a marginal gain of 0.08%.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 55.01 points, or 2.11% at 2,662 and Taiwan's Weighted Index gained 49.64 points, or 0.63%, to close at 7,941. However, Indonesia's Jakarta Composite Index ended almost flat with a loss of 0.41 points, or 0.01%, at 3,053, and Singapore's Strait Times Index lost 6.46 points, or 0.22%, and closed at 2,933.

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The major European averages are moving to the downside on Monday, with the French CAC 40 Index and the German DAX Index are receding 0.94% and 0.16%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.34%.

A report released by Eurostat showed that the euro area’s annual inflation rose at an unrevised rate of 1.7% in July compared to the previous month. On a monthly basis, consumer prices were down 0.3%, slightly smaller than the consensus forecast for a 0.4% drop. Excluding volatile food and energy prices, the core annual inflation rate rose to 1% from 0.9% in June. The core inflation rate matched economists' expectations.

A housing report released by property website Rightmove showed that the average asking prices for English and Welsh homes fell 1.7% month-on-month in the four weeks to August 7 following a 0.6% decrease in the previous month. The average price of a home was now 232,241 pounds.

U.S. Economic News

The Commerce Department's housing starts report for July, the National Association of Home Builders' housing market index for August, the Federal Reserve's industrial production report for July, the weekly jobless claims report and the results of the New York and Philadelphia Federal Reserves’ manufacturing surveys will headline the economic events/reports of the unfolding week.

Traders may also focus on the producer price inflation report for July, the Conference Board's leading economic indicators index and speeches by Federal Reserve officials. Announcements concerning treasury auctions of 2-year, 5-year and 7-year notes along with the findings of the Fed's senior loan officer survey due on Monday could also come under scrutiny.

The housing market correction that started after the impact of the first time homebuyers' credit faded away may have now run its course. Supporting the expectations, building permits rose in June after declining sharply in the previous two months. That said, expectations are weighed down by the fact that homebuilder confidence eroded in July and payroll employment in the residential construction sector fell in July. Nevertheless, the rock bottom level of new home inventories should lend some support to housing starts.

Industrial output for July could expand at a faster rate than in June, given the fact that the Institute for Supply Management's manufacturing index is still above the cut-off level demarcating expansion and contraction. The July national employment report showed that manufacturing employment increased by 36,000 and average weekly hours worked in the sector rose by 6 minutes. All these point towards an increase in the pace of output in July.

After declining for three straight months, the producer price index is expected to show an increase in July due to firmer commodity prices and a weaker dollar. The annual rate should climb back above 4%. The core producer price inflation rate is expected to remain unchanged at 0.1%. BMO Capital Markets noted that falling unit labor costs have allowed factories to forgo passing higher material costs onto consumers despite inflationary pressure building in core intermediate and crude goods.

The results of the New York Federal Reserve's empire state manufacturing survey for August showed that conditions among manufacturers in the region improved slightly. The headline general business conditions index for August rose 2 points to 7.1, while economists expected a reading of 7.5.

However, the sub-indexes were mostly negative. The new orders and shipments indexes declined below zero for the first time in more than a year. The unfilled orders index also was negative. The six-month outlook index weakened.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for May at 9 AM ET.

The National Association of Home Builders is scheduled to release the results of its August survey on homebuilders' confidence at 10 AM ET. The index is widely expected to remain unchanged at 14.

The housing market index fell to 14 in July from a downwardly revised reading of 16 for June, marking its lowest level in well over a year. The present conditions index declined 2 points to 15 and the outlook index fell 1 point to 21, while the index measuring prospective buyer traffic moved down 3 points to 10.

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Earnings

Lowe’s (LOW) reported that its second quarter earnings increased to 58 cents per share from 51 cents per share last year. The company also reported 3.7% sales growth to $14.4 billion. The consensus estimates called for earnings of 59 cents per share on revenues of $14.52 billion. For the second quarter, Lowe’s expects sales growth of 3%-5% and earnings of 28-32 cents per share, and for the full year, the company expects sales growth of 4% and earnings per share of $1.38-$1.45. Analysts estimate earnings of 31 cents per share for the third quarter and $1.42 per share for the full year, while they estimate sales growth of 5.20% for the third quarter and 5% for the full year.

Other Corporate News

Corning (GLW) is likely to see some activity after it announced that it has reached an agreement with the shareholders of Plaslab to buy all outstanding shares of the company. The company expects the deal to close in the fourth quarter of 2010.

Agrium (AGU) is likely to see some activity after it said it has submitted a fully financed proposal to buy AWB Ltd. at a price of 1.50 Australian dollars per AWB share.

Dell (DELL) could move in reaction to its announcement that it has signed an agreement to buy virtualized storage solutions provider 3PAR (PAR) for $1.15 billion, net of the latter’s cash. The company noted that the boards of both companies have approved the deal.

Currency, Commodity Markets

Crude oil futures are trading up $0.42 at $75.81 a barrel after declining $5.31 or 6.58% to $75.39 a barrel in the week ended August 13th. Last Monday, oil broke a 3-session losing streak, as the equity markets bounced back moderately. However, oil slid modestly on Tuesday amid the Fed rate decision, which instilled little hope of a sustained pick up.

On Wednesday, risk aversion led to a large scale sell-off in the commodity, with oil declining over $2-a-barrel. The decline came despite the International Energy Agency nudging up its forecast for world oil demand and amid the release of a mixed inventory report.

Oil declined by over $2-a-barrel yet again on Thursday, as selling continued in the space. The commodity slipped slightly on Friday amid the release of the lackluster retail sales report to close at its lowest level since July 6th.

Gold futures, which rose $11.30 or 0.94% to $1,216.60 an ounce in the previous week, are currently rising $11.50 to $1,228.10 an ounce.

Among currencies, the U.S. dollar rebounded in the week ended August 13th, rising against both the euro and the yen on the return of risk aversion amid the release of soft economic data. The dollar rose 3.65% against the yen to 86.1955 yen and advanced 0.80% against the euro to $1.2754.

The U.S. dollar is trading at 85.365 yen and is valued at $1.2847 versus the euro.

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